The impact of Coronovirus on Financial Institutions
Coronavirus has hit the restart button for global economies.
From news of its first incidence in December 2019 to March 2020, the economic path wrought by Coronavirus has been a dramatic journey. As the Coronavirus spread exponentially from Asia to Europe, it brought about a change in events that nobody could have ever foreseen. With the Q1 of 2020 drawing to a close, Europe is grappling with the burden of widespread Coronavirus incidences and huge casualties, while China where it first began has recovered quick and jumpstarted its economic activities.
Fallouts of the Coronavirus (COVID-19)
In the current uncertain economic environment, the fallouts have been huge and on multiple fronts. With most people without job security, they have become hunting grounds for scamsters and fraudulent activities. According to Bruce Kasman, Chief Economist at J.P. Morgan Research, “the COVID-19 shock will produce a global recession, as nearly all of the world contracts over the three months between February and April.”
A. Economic fallout
Many business activities have sprung up to feed off the Covid-19 scare. Cryptocurrency was discovered as a spamming agent for medical supplies as early as January. According to the blockchain firm AnChain.AI, these fraudulent transactions led a transaction trail to Asian countries.
In Europe, bad actors came up with ideas of fraudulent business activities such as charity foundations and hiring agencies. They tapped the idle manpower looking for ways to make money legitimately in light of back-to-back company closures. From remote work opportunities like transferring funds, to delivering merchandise, these websites devised ingenious ways for financial crime.
Furthermore, as the cases of coronavirus positives escalated, it pushed governments across Europe and Asia-Pacific to enforce quarantine. This fuelled higher demand from panic buying and pushed food prices up almost always payable by cash. Needless to say these are potential ripe grounds for money laundering activities.
B. Financial fallouts
Most economies are on the brink of collapse. Coupled with missed payments and higher withdrawals and redemptions, firms and banks are on the verge of becoming deficit agents, as per Financial Times. This brings forth concerns similar to the 2007-08 financial crisis when companies and FIs were lax with their customer onboarding mechanisms.
Today the situation is perhaps more grim than a decade ago, despite stringent regulatory mechanisms in the interim years. What’s different is that smaller economies like Taiwan and Vietnam are more exposed to the world. Financial transactions have also become more seamless, and business activities more global, with the digital ecosystem fostering a robust environment of cross-border transactions.
What does this mean for the world as a whole?
While China may have adopted the strategy of deep cleaning infected cash to destroy the coronavirus, most countries will not be able to do so.
With many stores closed because the supply chain has taken a hit with lockdowns or concentrated pockets of infections, most likely this will further create an opportunity for digital payment wallets as an infection-free contactless means of payment.
The surge in unemployment in the United States and most countries worldwide in the wake of the recession will set back the development clock. As we have seen in the wake of the 2007-08 crisis, unemployment translates into more exposure to fraud and fraudulent activities. This is more so, for entities that are from high-risk or sanctioned countries like Iran and Pakistan, both of which are badly hit by the Coronavirus.
While the startup ecosystem in European nations like Italy and Spain will take a backseat until the stimulus packages begin to show results, some sectors will have a positive impact.
According to Sridhar Iyengar, Managing Director, Europe Zoho, “Technology can play a key role in helping businesses to operate as usual.”
We are already witnessing this next phase of digital transformation. COVID-19 has ramped up the adoption of technologies – digital payments and money transfers, online buying habits and investment preferences. This will have a Domino effect in several areas:
- ✔ Growth in FinTech
- ✔ Demand for online supermarkets and eCommerce
- ✔ Step-up in AML/CTF measures
- ✔ Increase in micro-lending and small money transfers
- ✔ Swell in Cryptocurrency activities
- ✔ Demand for more contactless KYC tools
A. Digital payments and wallets accelerate FinTech adoption
The fears surrounding an unknown virus have resulted in a dramatic transformation in regions that have always favoured cash or credit over payment wallets. From Grab to PayTm, Asian FinTech tech companies witnessed a sudden spike in new customers downloading the app.
This trend will continue, as the COVID-19 deaths drive people to abandon currency notes potentially carrying the virus in favour of use online/digital payments. With social distancing norms here to stay for a while, banks are also advocating the use of remote customer onboarding. The RBI has already allowed video KYC.
B. Demand for contactless home deliveries
As countries go into lockdown, and most citizens prefer self-isolation to escape getting the coronavirus, the demand for e-commerce vendors servicing households has risen. This, in turn, has a two-pronged effect: growth in FinTech payment wallets and new customers onboarding the online grocery stores. As e-commerce is a potential high-risk sector for fraud and money laundering, this is another area that needs a cautious approach to customer due diligence processes.
C. Regulators come down hard
Amidst fears of a long term impact of the recession, AML/CTF regulators will enforce stricter KYC and due diligence checks for onboarding of new customers as well as those from high-risk sanctioned countries. This means there will be a huge spurt in the demand for automated customer verification as the only way to verify the identity of a customer.
We have seen how the EU, MAS, AUSTRAC, PMLA and others have specific directives for the KYC process. While the EU 5AMLD requires checks against UBO Register, MAS and AUSTRAC want you to check against PEP or sanctions. The COVID-19 crisis will result in more stringent KYC rules across the world.
D. Microlending operations emerge as the frontiers of small finance
As millions of jobs and lives are lost, the impact of COVID-19 is huge. The demand for small loans without the collaterals that banks want, will result in a spurt of microfinancing institutions (MFI). The success of MFI models across Asia may be replicated across Europe as well.
E. Cryptocurrency activities proliferate
After the crash in world stock markets and uncertainties over the state of the economy, more individuals are opting to invest in virtual currencies as a safe haven. Cases of fraud in medical supplies surface almost every week. The income from such dubious activities may also be parked in virtual wallets to be eventually laundered.
F. Spike in demand for automated contactless KYC tools
With a spurt in microfinancing and money service businesses, demand for contactless deliveries and payments, as well as Cryptocurrency, the demand for a robust KYC tool that operates seamlessly is also stronger.
This means unlimited opportunities for BASIS ID as the go-to tool for contactless customer verification.
BASIS ID tool for KYC and AML compliance
BASIS ID helps to realise the objectives of AML compliance as mandated by the governing regime. Its automated database is customised to serve the needs of regulatory compliance in the country of registration.
So whether you are a microfinancing entity, a money service or loans business, an e-commerce company or a FI, you can bank upon BASIS ID to serve your needs of IDV compliance.
How does our automated KYC process help reduce fraud?
BASIS ID is an automated KYC and AML software for speedy verification of customer documents. It supports more than 240 countries and all compliance requirements of eKYC, AML and data protection regulations in Europe, US and Southeast Asia.
So if you are a business with activities in various countries or undertaking cross-border transactions, you can do all your IDV in a single dashboard to create customer verification templates, control results and generate reports. With BASIS ID, you do not need to have multiple third-party providers to render your customer verification requirements.
The importance of KYC checks cannot be underscored enough. It sets the first of many AML defensive structures in front of fraudsters and is the cornerstone for all of the following monitoring.
The success of government stimulus packages during the COVID-19 lockdowns introduced by the government of India depends upon the quality assurance of the KYC. In the Philippines where benefits are passed on to citizens registered with the biometrics enabled Unified Identifier System, identity fraud by recipients are also averted.
As the effects of the coronavirus are here to stay for a while, the importance of an integrated KYC tool using the latest technologies of biometric facial recognition and AI for fraud detection will find increased use. Whether you are a FinTech payment wallet, an e-commerce provider or a microloan facilitator, you will need to equip yourself with the best of KYC/AML software like the BASIS ID for fast customer onboarding. BASIS ID helps to overcome barriers.